Real wage growth barely moves as inflation squeezes UK household budgets
Your pay packet is growing, but your money isn’t going as far. That’s the reality facing millions of British workers right now, according to new figures from the Office for National Statistics.
Wages rose by 3.4% in the three months to May — but when you subtract inflation, real pay growth was just 0.4%. That’s barely enough to notice. A year ago, wages were growing at 5.1%, so things have slowed considerably.
The good news? Inflation itself is falling. The consumer price index stood at 2.8% in May and is expected to drop to 2.6% when June figures are released. That should mean bills and groceries stop rising quite so steeply. But even so, the mismatch between wage growth and living costs remains a real problem for household finances.
New Prime Minister Andy Burnham has already taken one step to ease the squeeze: removing VAT on electricity bills. The government expects this to cut around £45 off the average household’s annual energy bill — welcome relief, but not enough to solve the problem entirely. Energy costs remain a major worry, with Middle East tensions expected to put pressure on fuel prices in coming months.
There’s also unsettling news from the jobs market. The unemployment rate held steady at 4.9% in May, with 1.76 million people out of work. Job vacancies have fallen, though they remain above the lows seen in early 2021. If you’re worried about job security, now might be a good time to build up an emergency fund if you can.
What can you do? Start by checking whether you’re entitled to any government support. If you’re struggling with energy bills, grants and schemes exist — search “energy bill support” on the government website. Look at your budget ruthlessly: are there subscriptions you can cancel? Can you switch energy suppliers or get a better deal on your mortgage?
If wages aren’t keeping pace with your costs, it might also be worth asking for a pay rise at your next review — especially if inflation-beating wages are rare right now. You’ve got a strong negotiating position.
For more help with budgeting during a cost of living crisis, visit StepChange or Citizens Advice online.